Dewan Cement Limited

Dewan Cement Limited (PSX: DCL) was set up in 1980 as a public limited company. The company is one of the companies in the Yousuf Dewan group of companies. The group also has companies in the textile and automotive sectors.

Dewan Cement manufactures and sells cement, at their two manufacturing units, Pakland Cement Limited and Saadi Cement Limited. Dewan Cement as of June 2020 has an annual capacity of 2.94 million tons of clinker.

Shareholding pattern

Owning 27 percent of the shares in Dewan Cement Limited, associated companies, undertakings and related parties are the key shareholders of the company, as at June 30, 2020. Within this category, Dewan Farooque Motors Limited is a major shareholder holding 13.5 percent shares. Other shareholders in this category are Dewan Development (Private) Limited owning 6.2 percent shares; and 3.74 percent of the shares held by Dewan Motors (Private) Limited and Dewan Mushtaq Motors Company (Private) Limited. About 70 percent of the shares are with the local general public, while the directors, CEO, their spouses, and minor children hold an insignificant number of shares. The remaining 3 percent shares are with the rest of the shareholder categories.

Historical operational performance

In the last four years, topline has grown only once in FY18, while profit margins have also been following a downward trend.

During FY17, topline reduced marginally by less than 1 percent; volumetrically, however, total dispatches for the company had increased from 2,007,491 tons in FY16 to 2,085,294 tons in FY17, growing by almost 4 percent. Most of this increase came from local dispatches of cement and GGBS. Yet it did not translate into higher revenue due to “5 percent excise duty changed to fixed duty of Rs 1,000 per ton”. On the other hand, cost of production increased slightly to 80 percent of revenue; however, it was the increase in distribution expense and lowering of other income that squeezed the operating margin. Net margin was relatively flat year on year at 10 percent due to lower tax expense.

The cement industry’s growth in FY18 was one of the highest seen in a decade at 13.84 percent with total dispatches at 45.89 million tons. Total dispatches for the company stood at 2,233,980 tons registering a 7 percent incline. This was primarily a result of an increase in cement dispatches. This led to a 4.4 percent increase in net revenue. However, cost of production rose to more than 84 percent of revenue, cutting gross margin down to 15.4 percent. The increase in cost was due to increase in input prices- coal. The effect of this also reflected in the bottomline that shrunk to Rs902 million, and a net margin of nearly 7 percent despite the support coming from great other income for the year.

Cement industry’s growth slowed down in FY19 as it grew by 2.13 percent, with total dispatches at 46.87 million. Most of the growth came from export dispatches while local dispatches actually reduced by close to 2 percent. The company’s trend was also similar as it saw reduced local dispatches due to slower construction activities in the domestic arena, while export dispatches registered an almost 70 percent increase. This led to a 10 percent growth in net revenue for the company. cost of production continued to increase due to rise in input prices- coal, paper and packaging and fuel. This caused gross margin to contract to 10 percent. Profitability was further worsened with other income nearly disappearing. Thus, the company posted a loss of Rs275 million for the year.

Growth in cement industry remained subdued at nearly 2 percent in FY20. Exports continued to support this growth whereas local dispatches saw an almost 1 percent drop. The company’s total dispatches were also lower, however, for both local and export, by almost 47 percent. This led to a 51.6 percent contraction in revenue due to slower construction activities coupled with lower prices due to a situation of excess capacity in the industry. With revenue more than halving year on year, the company was unable to cover its costs, leading to a gross loss for the year, that aggravated to a net loss of over Rs1.3 billion.

Quarterly results and future outlook

During 1QFY21, cement industry’s growth was a commendable 22 percent year on year, volumetrically; both local and export dispatches saw an incline. However, for Dewan Cement, total dispatches had nearly disappeared since the company decided to shut the plant in the event of Covid-19; total dispatches for the company were 2,353 tons in 1QFY21 as compared to 312,997 tons in 1QFY20. Therefore, losses for the period were unusually high.

The company foresees demand picking up in the future on the back of China Pakistan Economic Corridor (CPEC) and Public Sector Development Projects (PSDP). Moreover, clinker and cement exports to China, Bangladesh and Sri Lanka will also help to increase volumes.